I Guess We Took The Roundabout Today
We knew the market was going to be down today, but we honestly expected a huge drop and then a late in the day recovery. Instead it took a direct route from opening up and cascading down the whole day.
There was no smoking gun that drove the market down. Concerns and mixed messages out of Europe was a factor and worries about more strict lending limits for US banks dragged down the financial sector and by the them the game was set to sell off the rest of the day.
We took advantage of the down turn and sold off our PUTs for ARO at a 35.6% gain after holding them for less than a week.
Now we have been doing a lot of trading in options over the last month and while I am telling you about the winners and the losers, I must warn you that options are not for everyone.
Most of the accounts we manage right now are almost 70-90% options. That is not comforting for some people as it can cause some very robust swings in value in the account. Those swings can be 50-60% in any direction. Watching your 30,000 dollar portfolio swing from being 5,000 up one day to being 7000 down the next can be nerve racking.
I found that I have been a bit cavalier with OPM. (Other People's Money). And even though I guarantee the principal and return on all of these accounts, it can still be scary to watch. As a result, I am taking one portfolio out of options (excepting up to 5% for hedging purposes) and will go back to a more conservative approach using the strict rules and guide lines of CAN SLIM as outlined by Bill O'Neil of IBD fame. This system when followed does work and it is easier for me as well.
Even more exciting news, one of our readers is very interested in learning the CAN SLIM IBD system so we are going work both accounts using O'Neils time tested system while juggling all the roller coaster accounts through this crazy volatility stretch.
That means I and this reader will be spending our time building a watch list of potential stocks to choose and waiting and waiting and waiting for the market to get out of this correction to make our first play. One of the strict rules of CAN SLIM is not to buy in a market correction as 70% of your price direction is determine by the overall and sector market. We should have plenty of time to build a nice watch list.
As we mentioned, it is that time of year again to determine where the market will finish on 2012. While we ponder that thought this week, we invite you to submit a guess by Friday January 6, 2012. Please provide your guess as to the Dow Jones Industrial Average and the S & P 500 by that date. The person who comes closest to the right number will win a one year subscription to investors.com including the eIBD, or one year of Morningstar Premium membership. Both are valued about $200.00.
This year we were looking for an S&P 500 of 1,380 and a Dow of 12,618. Obviously we will come up short of that. Put your investment minds to the test, and share with us your guess by January 6.
Salve Lucrum
